Haynesville Shale: Alive and well

Proximity of the shale played a part in the announcements over the past year of more than $62.3 billion in manufacturing projects in Louisiana.

The Haynesville Shale is alive and well – at least for some property owners off Red Bluff Road near Stonewall, that is.

Landowner Mark Burford said he, like his neighbors, was a little concerned when the natural gas development slowed to a crawl early last year. One well was drilled into a section they all share. Promises were made for more.

In recent weeks, that promise came to fruition as Exco Resources moved in three rigs to drill seven wells. “They mean business,” said Burford, who owns the biggest portion of the drilling unit. His extended family owns about 12,000 acres scattered throughout the parish. “But a lot of the cousins are not getting what we’re getting so they’re pretty envious right now.”

There was a time five years ago that other areas of the nation also were jealous of northwest Louisiana’s coveted spot in the heart of the Haynesville Shale. It was in late March 2008 that Chesapeake Energy announced the discovery of what was billed as the largest natural gas field in the United States.

It took about two months before the frenzy took hold. Land leases once a couple of hundred dollars an acre zoomed to an increasable $30,000 an acre by the summer.

But the shale had a hiccup last year. By March 2012, oil and gas companies began scaling back activities. Plunging natural gas prices and an overabundance of supply were blamed.

The Haynesville Shale also gained competition from other shale plays, especially those that also included natural gas liquids or oil. Almost quietly, though, in recent months, the shale play is drawing operators back into the game.

Natural gas prices have inched upward slightly so companies such as EnCana Oil and Gas have returned rigs to the area with plans for more to come. But it’s likely the activity on the Gulf Coast that signals more long-term stability for this northwest Louisiana resource.

Abundant and less volatile-priced natural gas supplies are leading to a renaissance of manufacturing announcements and industrial activity throughout the country. This is particularly true in Louisiana where more than $62.3 billion in a variety of new capital investments has been announced over the past 12 months. Playing a factor in the projects is the proximity to one of the nation’s largest sources of supply, the Haynesville Shale, according to David Dismukes, professor and associate executive director for the LSU Center for Energy Studies

While all of the investments are not likely to be made directly in Louisiana, an estimated $20.2 billion is expected to be spent entirely within the state on construction-related activities developing or expanding new manufacturing or industrial sites. The announced natural gas-induced projects are estimated to generate an economic benefit of more than $29.7 billion in economic impact through 2019, a cumulative increase of some 214,670 jobs and a $9.3 billion increase in wages over the construction period.

Dismukes examined the potential economic impact in relation to the natural gas production in the state in a study titled “Unconventional Resources and Louisiana’s Manufacturing Development Renaissance.” It was sponsored by the Louisiana Oil and Gas Association and American’s Natural Gas Alliance.

Companies such as Cheniere and Sempra Energy plan to export liquefied natural gas (LNG) from expanded facilities in Cameron Parish. Shell and Sasol will build gas-to-liquids facilities, with Sasol selecting Calcasieu Parish for its operations and Shell’s still to be announced. Closer to home, Benteler Steel in Caddo Parish is building a steel mill, and Sundrop Fuels is constructing a plant near Alexandria where it intends to produce “green gasoline.”

Dismukes reports all are energy-intensive industries.

“The new investment opportunities have been documented to have been facilitated primarily by abundant natural gas supplies. Some of the investments are new greenfield developments while several others represent expansions at existing Louisiana manufacturing facilities,” he said.

Additionally, Louisiana’s existing chemical industry is one of the single largest sectors in terms of employment, output value and energy usage. This sector uses natural gas to process heat and steam, to generate a considerable amount of electricity, and as a feedstock to make everything from plastics to pharmaceuticals, and as inputs for products such as cosmetics, fibers, tires, and clothing, according to Dismukes.

Also noted in his report:

• With an abundance of natural gas supply, a number of companies have applied for licenses to export LNG.

• Eighteen project sponsors have applied to the Department of Energy for authorization to export domestically produced LNG to free trade agreement and non-free trade agreement countries, totaling 27.4 billion cubic feet a day of capacity.

• Of these applications, 14 project sponsors totaling 25.1 Bcf/d are located on the Gulf Coast.
Active and relevant

To date, the Haynesville Shale has had a $14 billion impact on the economy, creating more than 60,000 jobs. The new facilities will add to that and ensure long term stability here.

“They are building or investing or remaining in the stated based on the resources we have in the ground,” said Ragan Dickens, LOGA’s North Louisiana director. “Will we see immediate impact? No, it’s more of a long term investment these companies are making to our state which will make the Haynesville Shale active and relevant.”

More than 2,400 wells have been drilled into the Haynesville since its 2008. But that’s only 25 percent of the resources in the ground. “So we’ve got a significant amount of natural gas left,” Dickens added.

One company expected to take advantage of it is EnCana. In November, Nucor Corp. announced a long-term agreement with EnCana for an onshore natural gas drilling program that company officials said will ensure a low cost supply of natural gas for its existing and future needs for more than 20 years. EnCana serves as operator, with Nucor paying its share of costs.

The agreement is expected to create a “sustainable competitive advantage” in natural gas costs for Nucor’s direct reduced iron facility under construction in Convent, which is on track for startup at mid-year, in addition to significantly increasing the company’s usage of natural gas, according to the announcement.

EnCana continues to partner with other companies, including Shell, in natural gas development, but spokeswoman Jerri Akers, team lead for stakeholder relations for EnCana’s Business Unit, said she was uncertain how much the Nucor deal contributed to EnCana’s return to the Haynesville Shale.

EnCana didn’t have a rig in the play during much of 2012. So far this year, three have returned and a fourth is on the way. A five-rig program is slated for the year, providing for approximately 24 gross wells and 13 net wells, Akers said.

“There was a time they were so low it couldn’t be profitable,” Akers said. “But gas has come up, and we are and continue to be a low-cost producer. We’ve become so good at what we do we’ve been able to keep supply cost low so that has really helped us.”

Aiding in that process are the longer laterals through the fracking process. The average drilled lateral was 7,100 feet, but this year it’s lengthened to 10,000 feet. “So we’re just getting better. We continue to advance our completion optimization and our resource play up,” said Akers of the company’s operations in Red River and DeSoto parishes. “We are able to capture more of the resource that we did before.”

Likewise, Exco, the company drilling in Burford’s section, boasted in its first-quarter report released in April, of its cost reduction and efficiency program delivering positive results. Improvements in drilling times, stimulation costs and overall capital efficiency puts DeSoto Parish well costs at an average of $7.8 million per well.

Exco will retain three rigs in the play, focusing on DeSoto Parish, throughout 2013. Product pricing and project economics will drive further decisions on drilling activity, but for the year, at least, plans are to drill 26 gross operated wells, and turn to sales a total of 42 gross wells using completions carried from wells drilled in late 2012, officials state in the quarterly report.

What will it take to get all of the operators back in full force in the play? “Most say $5 gas will bring them back,” Dickens said.

While it’s not reached that point yet, the rig count overall has improved from 12 in January 2012 to 38 as of last week. Of course, that’s significantly less than the 140 operating in the shale during 2010-11 when it was the major player in the nation.

Dismukes points out in his report that the unconventional natural gas developments such as the Hayneville Shale have played, and will continue to play, a significant role in North American and even global energy markets. “While some federal and state policy makers are starting to recognize the considerable economic benefits created by ‘upstream’ unconventional drilling and production activities, few recognize the impact that affordable, stable, and abundant natural gas supplies are having on recent ‘downstream’ manufacturing investment announcements throughout the country,” Dismukes said.

And officials say that’s the future for the Haynesville Shale. “It’s not going to return tomorrow, but we have stability for the long term,” Dickens said.